Agribusiness Wrap-Up

This is the third and final article in a series about Philippine agriculture. The first article provided an overview of agriculture and government institutions and practices. It characterized agribusiness as “dead in the water” because of the inefficiency of small farms and the general ineffectiveness of cooperatives. It also recognized that government funding of agribusiness is weak and regulatory activities are bound up in licensing and other restraints.

The second article identified the major players in agribusiness. These firms issue the contracts that bind growers to providing a certain quantity and quality of product at a specified price. These companies are not failing, by a long shot.

This third piece wraps things up. It is a discussion paper, not an exercise of agenda. If the tone is sharp or heavy handed, maybe I just didn’t get enough sleep, eh? I always welcome being set straight if I have missed a turn or two along the way.

Stuctural Problem Number One

Without a doubt we have a growing infrastructure that is not working. Yet a few wealthy men are able to squeeze significant profits from it.

It is no great mystery as to why leftists are upset.

But hold on a minute! Their proposals are perhaps the biggest part of the problem. The agitation to “take care of the laborer” generated the land distribution nightmare that produced the small farms and poor growing mechanisms that make Philippine farming what it is. An industry of a bazillion small, unprofitable farms.

And leadership is missing because cooperatives don’t provide it.

The socialistic land distribution, cooperative ideology has failed.

But I’m sorry to report that it is only one-third of the whole problem.

Structural Problem Number Two

Problem number two is that governmental agencies are busy being busy. Licensing and inspecting and being proud of this program or that. But not unleashing what could be a monster of a growing nation.

A large part of the reason is the low priority given to agribusiness in the national budget. There are no subsidy programs to speak of, no government-sponsored cooperatives that bring in professional management, no government markets that provide an alternative to big business markets. And maybe there shouldn’t be. We are, after all, a capitalist country, not a socialist country. But we are operating what is substantially a socialist model under a government that is substantially disengaged.

Regulatory agencies are there, for sure. But they are bound in a morass of minutia, the permitting and licensing and chopping up of the budgetary pie into useless small slices. The structural shortcomings of small farms and cooperatives aren’t even recognized in the Department of Agriculture plans.

And if you think this is just an arrogant foreigner ragging on the Philippines, read this article. It’s by a Filipino.

Structural Problem Number Three

If we are a capitalist country, should not the markets be open and competitive? The current state of affairs is that, if you are good at producing, you sell to San Miguel or you sell to nobody. You sell to Nestle, or you sell to nobody.

What tremendous leverage these big players have.

The moneymakers at the top are unrestrained, wheeling and dealing for more profits, and the farmers at the bottom are wrapped up in bindings so tight that the blood circulation is cut off.

We need to flip this hotcake

The system is grossly flawed. It is time to flip the hotcake, to open up farming to grow and prosper, and to mandate competition for the markets into which farmers sell.

The ideal of farmers having their own land is beautiful. But it turns ugly when the farms can’t produce enough food or profits and everyone is starving.

So the first decision is, do we stay the same, or change?

Which will feed the nation better? Good intentions or profitable businesses?

All I know is that if you don’t change you stay the same.

Small scale farms mean failure

I’m no genius, but I can figure out what needs to happen if you are serious about becoming an agribusiness nation rather than a nation with a zillion unprofitable growing fields.

Declare CARP dead. Open farmland up to capitalists.

Put farm labor on a minimum-wage scale that works steadily upward, every year, by law, to get past the poverty point. Establish a “Farm Wage Board” to set this amount. Don’t let Congress write the amounts into the national laws as has been done with domestic workers who are assured of being penalized by wage levels that are fixed at a low mark.

Replace cooperatives with profit-making corporations

It is plain as day, right there before our eyes. We can see the failure of cooperatives. They are unable to assure that farms are profitable with good production, packaging and marketing disciplines. It is wise to dump cooperatives as the Philippine agribusiness model. Even if a Constitutional amendment is required.

Just look at history. And run screaming away from it.

Envision a future: a productive nation, exporting, competing globally, excelling in the fields, adding another blossoming industry, like tourism, to its improving economic condition. And make it happen.

Objections

Perhaps some would be envious that the Aquino family would have “won”.

Well, perhaps they should never have lost in the first place, with the good-hearted, wrong-headed ruling to divide up the land. Perhaps the solution to poor laborers is to be found in successful farming, not failed farming.

Many would undoubtedly be upset because laborers might lose their jobs to machines.

Yes, they will. It is the way progress works.

But I’d suggest it is wise to have confidence in capitalism. To look at the forest, not the trees. You can’t stay the same and change. Accept that there will be flight from the farms to the cities. It is the way capitalistic countries go, and grow. The farm employee rolls shrink. But banks and investment houses and insurance companies and consultants and lawyers galore rise. And they hire a lot of people. Have you seen China’s cities lately?

These wonderful Philippine ideals, land for all, harmonious cooperatives kiss kiss, so good of heart and intent, are keeping the Philippines poor.

Growers need a choice of markets

If a farmer takes the risk and puts his money into the land, he needs good assurance that he will pull in a profit at harvest time. Contracts with the big dogs of Philippine agribusiness do this if you are big enough. But the big dogs make their money by squeezing the farmers.

Three developments could enlarge agribusiness markets and grower profits:

Expanded export markets. Farms have to be big enough to get a buyer’s attention.

More Philippine-based product packaging and marketing opportunities, rather than farms selling raw products to overseas packagers who sell it back to Philippine consumers as packaged goods. Public-private partnerships could establish these middle-scale packagers.

Look very carefully at “big boy” concentrations of product buying power in the Philippines. Are the concentrations too limited? Are there choices for a hog-raiser to sell into, so that he does not get skinned by the one main buyer?

To the latter point, anti-trust legislation comes before the Legislature from time to time, but it never pops out as law. The Philippines needs to establish the regulatory framework that keeps markets open and competitive. Otherwise profits will never flow downstream to growers.

The way is clear; whither the will?

To make farming successful, legislators have to establish a vision of the Philippines as a growing powerhouse. Then put in place the open markets that allow the nation’s two key competitive advantages to emerge: low growing costs and superb growing climate. The structure there now is a constraint at every step of the way: in the fields (small farms), in the investment (foreign investors locked out), in the regulations (control focus), in the marketing (ineffective cooperatives and few packaging houses), and in the markets (a few big dog buyers or low-margin overseas buyers).

It’s lose, lose, lose, lose, lose.

Someone needs to have the vision . . . and the will . . .to convert it to win, win, win, win,win.

Comments

To be honest, I don’t like the idea of “killing” the small farms. Small farms are where the products from local markets come from and based on my experience, there are better quality in markets than the one shelved by SM and corporations in their supermarket. Maybe, the alternative here is for have government programs to help them keep up to date and to lessen the influence of middlemen (most of whom are making the produce just more expensive). Also, corporate produced are not necessarily cheaper esp in the Philippines. When I was living in Baguio, the vegetables that SM Baguio sells was way more expensive and low quality than the ones you get in the public market. It’s even cheaper if you go right to the trading post in La Trinindad.

IMO, SMEs do have nice quirks that corporations cannot offer. I even prefer the peanut butter made by small local businesses as opposed to corporate peanut butter.I can at least still taste the peanut compared to corporate peanut butter that tastes more sugary.

IDK but in certain places in the Philippines, these large corporate businesses sell more expensive stuff than SMEs. When I was still living in Baguio, I never shopped for groceries in SM. it’s far more expensive as compared to small groceries run by local businessmen. Ironically, SM check outs are way slower despite being more spacious and “hi tech” as compared to locally owned SMEs.

And corporations in the Philippines aren’t too interested in feeding the Philippines. A lot of corporate agribusiness prefer to export due to larger market. Most consumed agri produce in the Philippines are supplied by small farms. Maybe, this is why they survive despite the presence of big corporations trying to penetrate. Small farms cater to domestic consumption while bigger companies prefer to plant palm oil for export, cavendish bananas for exports, pineapples for exports, mangoes for exports.Corporations in the Philippines unfortunately, are not interested in stabilizing food supply. Now, if corporate banana growers will plant more lacatan and luntuduan, they will be bringing down the cost of these native bananas and be less affected by Chinese or Australia ban on Philippine Cavendish…but then, they’re not interested. A lot of corporations in food business are more interested in feeding the Philippines with high sodium processed food than fresh produce. If that happens, the Philippines, one day, will be as fat as the US. LOL

Very important perspectives, indeed. I think the large corporations are able to mark their products up because there is little competition. They mark it toward U.S. prices, and make a ton of money. The local sellers don’t put in that kind of “obscene” profit. That argues for anti-trust legislation, and government sponsorship (public/private?) of middle-range packagers of “Filipino product” that I think, if done well, would break the market open for quality food priced right. Small farms could actually make money in that kind of market, too, so you make a good point. We need mid-range packagers of Filipino products for Filipinos, as first priority, and export, second. Thanks for that bit of insight.

I think the problem with very big corporations like SM is that they become “insensitive” to local standard of living. I believe their products, produce included are priced universally while local businesses are more sensitive to standard of living hence the lower prices on other places.

I agree with your second to the last line. Food for Filipinos first and the excess are exported. Not the kind that we export what we can grow and import the same stuff. Maybe, a law can impose something similar to corporations in food business. Satisfy the local demand first before exporting

I was struck by the notion of expecting large corporations to help feed poor Filipinos, and checked out San Miguel’s annual report. San Miguel writes:
____________

“Throughout our transformation these past couple of years, we have never wavered in our resolve to play a major role in the development our country. We have come to understand that investing in our country is the best way to jumpstart growth as well as push forward our social development agenda. It’s in this spirit that we have taken on more meaningful social investments that have tangible, long-term benefits to our countrymen.

We are proud to report that for 2012, our spending for social development breached the P1-billion mark, the biggest by far, by any company in Philippine history. Of this, P550 million went towards constructing 5,000 new homes in Cagayan de Oro, Iligan, and Negros Oriental for the victims of typhoon Sendong, the single-largest corporate social responsibility initiative in the country.

We also continued to invest on important social causes that are closely tied to our country’s development: education, health and nutrition, environmental preservation, community-building, and disaster management.”
_____________

The company mentions elsewhere than it does zero-interest loans to help farmers (due in one year) and sponsors a variety of medical clinics.

What I had in mind was actually the kind of “feeding” by supplying inexpensive but quality food to the people by prioritizing the domestic supply over export products (same products that we, ironically, import).

Large scale farming requires government price support aka subsidies. Russia, U.S., France to name a few subsidize their farmers. The U.S. allows imports hispanic farmers for very little pay and house them in diplorable conditions which Americans would never accept. This importation of farm worker is another covert subsidy. If Filipinos sell their papayas at a price that sustain a family their papayas would rut away. Filipinos would rather sell their land to developers and buy rice from SM imported from Vietnam.

… another thing is planting rice is never fun. Watching them plant rice is for tourism industry only but back-breaking to the farmers. They might as well plant weed. It has higher returns. Poppy seeds anyone?

I remember someone telling me (but haven’t the chance to confirm) that in Japan, the government allows foreign rice as per WTO commitments but buys all of them in bulk and sends them as aid to poor countries.

I’m tired of ranting so i suggest you check this Magsaysay awardee and his farming development program. When he spoke at an event I attended, he showed us that rural, upland farmers can be rich and afford cars, houses and other perks.

P.S. From this day on, i will post bearing this name. I felt insecure using my name, Angelo….. Some researcher from the big network might check your blog, pick a post and publish my comment for their social media segment thing. Hahahaha

What an uplifting report. It seems that President Aquino is there. Maybe Dr. Davide’s disciplines can get injected into a wider range of farms. Let him head Dep Ag.

Welcome to the ranks of the pragmatically invisible. When you figure out how to shut down FB, let me know. My personal account is languishing unattended and I’m tired of the three e-mails per day from FB hounding me to add friends. I don’t HAVE any friends. 🙂

Perhaps we will see agribusiness awaken from its lengthy slumber. Such great competitive advantages (growing conditions and low costs) simply not applied. Maybe it will be like tourism. Tourism is waking up.

1. From the foregoing, it seems that different sized farms are needed to meet various needs.

1.1. Small farms, but of sufficient size, for family self-sufficiency and to sell to local markets. Owned by a single family and probably unmechanized. Produce would be staple crops, vegetables, some livestock.

1.2. Medium farms for community self-sufficiency and to sell to local and non-local domestic markets. Either owned by a single family or a cooperative. Mechanized. Produce would be staple crops, specialized crops, medium-scale poultry, hogs and aquaculture.

1.3. Large farms for national self-sufficiency and to sell for domestic consumption, for pure export, or a mixture of both. Totally mechanized with hired workers and specialists of all kinds. Produce would be staple or specialized crops, large-scale poultry, hogs and other livestock, and aquaculture.

2. I like the idea of small farms of sufficient size to sustain a family and some. Then farmers have something to call their own and have their place in the sun. The drawbacks are many: back-breaking work, productivity, insufficient gain, risks of natural calamities, etc.

3. The Meloto vision seems to be community self-sufficiency within a self-contained environment. Apart from contribution to the community effort, each family has their own separate source of income. Are the lands communally owned? Is there an excess of produce for sale outside the community?

3.1. The Meloto vision uplifts the poor from poverty: “You eat, you shop and you help us end poverty”.

3.2. The vision seems to be scalable horizontally. That is, it has been applied to several communities, with each iteration an improvement on the last, and it has been applied to other communities in other countries.

3.3. Is the vision scalable vertically? That is, the uplift is from lower class to middle-class. Can the uplift go further from middle-class to upper class? I would guess so, yes. With the emphasis on education, the children would be able to scale heights denied their lower-class brothers and sisters. In which case, they will leave their self-contained environment and go into the wide and wild world and hopefully not forget their origins. Or bring their values of self-respect and self-sufficiency to the wider world.

4. Most modern states seem to encourage a move to the cities and small towns are dying. I hope not. The vision of self-sufficient rural communities supporting giant metropolises seems to be the way to go. So if one is tired with the Big Smoke then one can take a retreat or retire in a small quiet village, far, far away from the madding crowd.

I track along with 1-3 nodding in agreement. When I get to number 4, I scratch my head. I don’t think the states themselves encourage city living. It is a natural occurrence that people move to where the jobs are. You can’t employ 40 million farmers in the Philippines. I tried to make the argument that you can’t change agribusiness without changing it. Now if markets were to suddenly appear to allow income to grow in a major way, that is one solution. Or if markets are static, you have to get more productive, more efficient, and squeeze more profit out of the land. Pragmatically, both are needed: improved productivity and healthy markets.

I simply don’t buy the argument that we have to use manual labor because machines put people out of work. Industrialized countries are industrialized because they accept that machines are a way of improving productivity and efficiency. Today, that is blocked because the laboring masses and their politicians want jobs over profit.

Bad decision I say.

Industrialize the Philippines. Automate it. Mechanize it. And the jobs will rise up in the cities. When people have made their mark, have their family, gained their riches, they can move back to the countryside to relax.

But not to farm, unless it is a hobby farm. Because farms will be cold-hearted business machines.

Fascinating reading. This paragraph seems to be the nail the author is driving:

“He also shows that sugar and banana yields in Taiwan from these home farms far exceeded plantation yields (which is what the Food and Agricultural Organization also has pointed out, but the data are ignored by large landholders and their supporters in the Philippines).”

Color me interested in the “how” part of small-farm productivity. Do family members work unbearable hours from dusk to dark whereas plantation farms are constrained by more humane labor policies? Are carabao simply more efficient than machines? It is so counter-intuitive that I’d like to see the devil that may be in the details.

Fast sharing of best practices (copy best performers, the Sari-sari syndrome = one has a good idea, the next morning all stores have it) No corporate decision layers in between.

Ownership: less waste, every corner of the land is used, knowledge of soils and micro climates, diseases corrected at the first symptom before they proliferate, individual treatment of each banana, … flexibility.

Smaller cost of risks, incremental investments, faster implementation

Crucial conditions:
• easy and unlimited access to capital to buy performing seeds, fertilizer… to stay competitive in the treadmill of ever improving yields.
• Clusters allowing cooperatives or farmer associations to create power at input and output side.
• Minimum income at the start (=guaranteed min. price) to make the dream of growing wealthy realistic.

That’s interesting. Some very tangible benefits to being small. The argument would suggest that they can outweigh things like financial know-how or specialization or knowledge about plant nutrition or clout in the marketplace.

So I will put that into the cranial feedbox the next time I feel a need to step up on the blogbox to pontificate about “agribusiness advantages over farming”.

Thanks.

(Plus, it is optimistic that the solution to agribusiness success in the Philippines may be as simple as slightly better government funding and better energizing of cooperatives.)

The equation the agro-industry tries to optimize is different: maximum return on investment. Their negation power too strong, almost monopolies. Small farmers foster a free market better in all respects.

Trackbacks

[…] Indeed, cooperatives, which are just a shade north of communes as a socialist enterprise, are the main structure for farm productivity in the Philippines. And they are failing. I wrote about that in an agribusiness series a while back. Here’s a link to the concluding article. […]

[…] Developing the land to grow things is a natural way to produce value. The land does the heavy-lifting if given seed, some water and a few nutrients, and if we keep invasive weeds and Chinese poachers out. The Philippines has the best growing conditions in the world but fails to convert them to value. I’ve written extensively about this and am not going to beat that dead horse anymore. Fishing is pretty much in the same miserable shape. And forestry. Link over to this article if you missed it: Agribusiness Wrap Up […]

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